Capital Investment Plan

The Commonwealth’s five-year capital investment plan is updated
annually after the operating budget has been released. Under Governor
Patrick’s leadership, the Executive Office for Administration and Finance (A&F)
now develops a five-year capital investment plan in conjunction with an annual
debt affordability analysis to help ensure Massachusetts continues to borrow
responsibly.

The current FY 2014-2018 plan implements the vision and priorities established in
each of the Patrick Administration’s first six plans. In large part, the
investments included in the FY 2014-2018 plan
continue ongoing projects launched in prior years. Over 80% of the bond-funded FY 2014 capital investment plan
is needed to fund previously-made commitments, including ongoing construction
contracts, investments needed to leverage federal funds, legal commitments and
personnel needed to carry out capital programs.

As with the prior capital plans,
the Administration engaged in a diligent, fiscally responsible, and
comprehensive process for developing this five-year capital investment proposal.
The Commonwealth is responsible for
maintaining a large inventory of capital assets, including transportation
infrastructure, courts, correctional facilities, state hospitals, office
buildings, parks and more. In addition, the Commonwealth makes targeted
capital investments to support economic growth, strengthen communities and
improve the quality of life in the Commonwealth. These investments include
funding for public infrastructure to support private development and job
growth, local infrastructure improvements and protection of our natural
resources. One common challenge each year is
that demand for capital improvements far exceeds affordable funding capacity.
The inevitable consequence is that many worthy projects will not receive
funding.

The primary factor constraining
the amount of the Commonwealth’s capital budget is affordability. The Commonwealth
must pay principal and interest costs each year on the bonds it issues to fund
its capital investment program. These annual debt service expenses on
outstanding Commonwealth bonds are funded each year in the Commonwealth’s
annual operating budget. The Patrick Administration is the first to develop
and publish an analysis of the amount of debt the Commonwealth can afford in
terms of its impact on debt service and the operating budget, and it is the
first to develop a policy for determining the annual borrowing amount to fund
the capital budget. In part due to the
Patrick Administration’s diligence in following the debt affordability
analysis, the state presently has ratings of Aa1 from
Moody’s and AA+ from Fitch and Standard & Poor’s. Taken together, these
ratings give Massachusetts its highest credit standing in history.

FY 2014-2018 Capital Investment Plan
Total Bond Cap

FY2014-2018 Capital Investment Plan

Total Bond Cap (In thousands)

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

Five Year Total

% of 5-Year Total

Community Investments

$346,485

$324,053

$290,509

$295,305

$275,974

$1,532,326

14%

Corrections

$76,412

$21,225

$30,115

$30,500

$30,100

$188,352

2%

Courts

$27,681

$66,472

$120,559

$82,600

$48,200

$345,512

3%

Economic Development

$126,780

$143,500

$123,500

$123,500

$117,003

$634,283

6%

Energy And Environment

$191,362

$126,691

$127,061

$107,152

$124,463

$676,729

6%

Health And Human Services

$92,338

$63,287

$40,081

$38,114

$48,000

$281,820

3%

Higher Education

$226,813

$251,716

$330,573

$409,100

$324,103

$1,542,305

14%

Housing

$179,500

$168,850

$169,500

$169,500

$170,000

$857,350

8%

Public Safety

$73,351

$44,546

$44,630

$36,086

$27,080

$225,692

2%

State Government Infrastructure

$220,401

$195,486

$158,197

$140,943

$142,078

$857,104

8%

Transportation

$644,550

$719,175

$815,275

$817,200

$943,000

$3,939,200

36%

Total Bond Cap

$2,205,673

$2,125,000

$2,250,000

$2,250,000

$2,250,000

$11,080,673

FY 2014-2018 Capital Investment Plan
Total All Sources

FY 2014-2018 Capital Investment Plan

Total All Sources (In thousands)

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

Five Year Total

% of 5-Year Total

Community Investments

$381,427

$354,953

$321,009

$326,205

$279,474

$1,663,068

9%

Corrections

$76,412

$21,225

$30,115

$30,500

$30,100

$188,352

1%

Courts

$27,681

$71,472

$135,559

$87,600

$48,200

$370,512

2%

Economic Development

$151,780

$168,500

$148,500

$148,500

$117,003

$734,283

4%

Energy And Environment

$243,038

$241,262

$237,531

$236,952

$182,392

$1,141,175

6%

Health And Human Services

$165,490

$125,706

$87,645

$63,066

$64,440

$506,347

3%

Higher Education

$266,611

$298,466

$386,773

$430,700

$325,603

$1,708,153

9%

Housing

$179,500

$168,850

$169,500

$169,500

$170,000

$857,350

5%

Public Safety

$83,001

$54,216

$47,830

$36,786

$27,080

$248,912

1%

State Government Infrastructure

$309,266

$290,223

$235,545

$193,862

$189,562

$1,218,458

6%

Transportation

$2,209,051

$2,372,916

$2,308,708

$1,848,490

$1,490,006

$10,229,171

54%

Total All Sources

$4,093,257

$4,167,789

$4,108,714

$3,572,161

$2,923,859

$18,865,781

Highlights of the FY 2014 Capital Investment Plan

In FY 2014, the Patrick Administration
will triple the funding to $15 M in the Cultural Facilities Fund to
support non-profit cultural facilities throughout the Commonwealth.

An investment of $10 M will be made in
critical coastal infrastructure projects immediately ready for
construction. This funding will also provide for a sweeping risk
assessment of the entire Massachusetts coastline and stimulate the
development of sustainable infrastructure projects to mitigate coastal
risk.

The Boston Public Market project will
convert a vacant state building adjacent to the Rose Kennedy Greenway into
a public market to offer a variety of local and culturally significant
food products. This project will create 100 construction jobs and 200
permanent jobs.

Funding of $62.6 M will be invested in
Governor Patrick’s Life Sciences Initiative in FY 2014, an $8.7 M increase
over FY13. These capital investments provide funding for over 15 projects
including the University of Massachusetts Amherst’s new life sciences
laboratories, Boston Children’s Hospital, LabCentral, Northern Essex
Community College, the University of the Massachusetts Dartmouth’s
Biomanufacturing Facility, the Joslin Diabetes Center, and the Dana Farber
Cancer Institute.

The FY 2014 Capital Plan includes the
announcement of an unprecedented number of new community college projects,
which affirms the Administration’s commitment to investing in community
colleges that provide students with strong educational foundations and
relevant workforce training opportunities that will prepare them for
success in the local job market or further academic study.

A one-time, $10 M additional
investment in Affordable Housing for Priority Populations projects will be
funded in FY 2014. This additional capital funding capacity will allow
DHCD to create additional housing options for priority populations,
including the chronically homeless, veterans and others in need of
supportive housing.

With over $450 M committed to the
Green Line Extension project to date, the FY 2014-18 Capital Investment
Plan anticipates Union Square service by mid-2017 and completing
construction tasks necessary to ensure rest of the proposed service begins
by the of this decade.

The full five-year Capital
Investment Plan can be found at www.mass.gov/capital. The
charts below show the plan’s investments by major investment categories for
each of the five fiscal years covered by the plan funded only from state bond
proceeds or “bond cap” and funded from all anticipated sources of capital
funding. Note that FY 14 includes $205 million in unused capacity from the
prior fiscal year. The Administration established the FY 2015 bond cap at
$2.125 B, and the FY16-2018 bond caps at $2.25 B. Future debt affordability analysis
may show sufficient revenue growth to allow increased bond cap in future plans.

Impact of Capital Budget on the Operating Budget

Each
year, as part of the annual development of the capital investment plan, the
Executive Office for Administration and Finance evaluates the operating budget
impacts for all requested projects. Every capital spending request must show
the incremental and ongoing annual operating costs/savings that are expected to
be incurred upon completion of the project. The decision on whether to fund a
capital project depends on A&F’s assessment of not only the programmatic
need for the project, but also the affordability of the related operating
costs. The following capital budget construction projects are expected to
result in an FY 2014 operating budget impact that exceeds $500,000 per year:

Bridgewater
State University’s Conant Science Building Modernization and Expansion

The
Massachusetts College of Liberal Arts’ Center for Science and Innovation

Springfield
Data Center

UMass
Amherst’s New Laboratory Science Building

UMass
Lowell’s South Campus Academic Facilities

In
addition, for construction projects that are starting study in FY 2014, those
studies will project the operating cost impact and will be reported to A&F during
the year. When agencies are preparing their
annual budget requests during A&F’s spending plan process they are asked
that the additional operational costs associated with capital projects are
reflected in their projected funding requirements.

With
additional funding appropriated in the FY 14 General Appropriations Act,
MassDOT was able to transfer $40 M in expenses from the capital budget to its
operating budget. The FY 2014-2018 Capital Investment Plan was developed in
accordance with the goal of ending the historical practice of using borrowed
money to pay for salaries, rents and other operating expenses within the next
two years.

Several
overarching initiatives currently being undertaken by the Commonwealth have
both capital and operating budget components. These initiatives include the
following:

The
Patrick Administration has also increased its focus on sustainable funding for
capital projects once they are completed, to ensure they are properly
maintained into the future. Through the capital investment plan, the
Patrick Administration has taken steps to reverse the pattern of
underinvestment and reduce the deferred maintenance backlog that was facing the
Commonwealth’s infrastructure. The Administration has also taken steps to
improve care for current and new capital assets as they are completed. The
Governor’s FY 2015 budget includes a $3.3 M investment in Integrated Facilities
Management (IFM) which will allow the Division of Capital Asset Management and
Maintenance (DCAMM) to implement a sustainable funding structure for their
capital portfolio. IFM establishes service standards as well as a detailed
rent methodology to ensure state agencies are caring for their capital assets
properly so they Commonwealth can use them for generations.

DCAMM
has also established the Clean Energy Investment Program (CEIP) to investment
in technology that increases energy efficiency and reduces costs in the long
term. Each CEIP project is required to submit a detailed return on investment
(ROI) analysis to DCAMM prior to receiving CEIP capital funds. This ROI
analysis requires each project to show at least a 10% savings figure; agencies
are then required to use this savings to fund the debt service on the CEIP
project once it is completed. Requiring agencies to use their savings on debt
service for the CEIP project ensures that agencies have the operating funding
necessary to sustain debt service payments over the life of the bonds as it
matches with corresponding decreases in energy spending need.

Project Financed IT Investments

Investments
in IT have substantial impacts across all corners of state government. State
agencies are able to provide increasingly higher levels of service in even the
most challenging fiscal climates; municipalities are able to invest more local
aid in programmatic needs instead of support systems; and health care cost
containment is in part made possible by the investments made in the
Commonwealth’s IT infrastructure. In addition to improving service, IT
investments can produce a return on investment to the Commonwealth through new
revenue or cost savings due to operational efficiencies.

To
ensure that the Commonwealth realizes this return on investment, the
Administration engaged a renowned private IT investment consultant to produce a
methodology for creating, maintaining and monitoring the long term benefits and
costs of IT capital projects. This methodology will be used to verify new and
existing projects’ long term impact and drive investment decisions. The
consultant is also now partnering with the Commonwealth to design and implement
a user-friendly but powerful web-based application to help identify the key
financial and non-financial benefits of IT investments.

One of
the key features of the new return on investment-based process is to help
identify projects which can generate increased revenues and/or operational
savings that can also help pay some or all of the costs of the project. In
cases where all or part of the project cost will be paid back through
operational savings or new revenue, the Commonwealth will use those funding
streams to pay back the associated debt service.

Finally, the Administration will
deploy a new Strategic IT Procurement Team to provide assistance to agencies
procuring large, complex IT projects and to help ensure that projects get off
to a good start. This team will take recommendations from the IT procurement
study due to the Legislature in 2014 and other industry best practices to
assist agencies with planning, writing and completing large procurements. The
goal of this team is to reduce onerous requirements which lead to extended
timelines for project completion and implementation of dated technology, as
well as to improve competition for the Commonwealth’s IT business.